TAX ON YOUR MAIN RESIDENCE. Stamp duty land tax. Residential (on slice of property value) Illustrative SDLT liability. Property value ( ) SDLT ( )

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1 TAX ON YOUR MAIN RESIDENCE Tax affects most areas of our financial lives, and housing is no exception. The good news is that some forms of tax specifically do not apply to housing; the bad news is that some are designed just for housing, or can be significantly affected by the home you own. Stamp duty land tax In his 2014 Autumn Statement the Chancellor announced significant changes to the rates of stamp duty land tax (SDLT). Instead of the slab approach, in which one rate of tax applied to the entire property value, tiered rates now apply to the portion of the purchase price within each of a set of five bands. The net effect has been to reduce SDLT for 98% of homebuyers: only properties valued at more than 937,500 now attract a higher SDLT charge than under the old regime. This has already had a chilling effect on prime London property transactions. SDLT is payable when you buy a property for more than 125,000. It operates on a sliding scale, and is based on the property s purchase price, not its valuation (which may be more or less than that). The current scale is: Residential (on slice of property value) Rate 0 125,000 Nil 125, ,000 2% 250, ,000 5% 925,001 to 1.5 million 10% 1.5 million + 12% * Note: 15% on entire value of properties worth over 500,000 if purchased by companies and certain other non-natural entities Illustrative SDLT liability Property value ( ) SDLT ( ) 150, ,000 1, ,000 2, ,000 5, ,000 10, ,000 15, ,000 20,000

2 750,000 27,500 1,000,000 43,750 1,500,000 93,750 2,000, ,750 From 1 April 2015, in Scotland the reformed SDLT was replaced by Land and Buildings Transaction Tax (LBTT), which has a similar structure, as shown below: Residential LBTT (on slice of property value) Rate 0 145,000 Nil 145, ,000 2% 250, ,000 5% 325,001 to 750,000 10% 750, % In his November 2015 Autumn Statement the Chancellor announced that from 1 April 2016 SDLT on individual purchases of additional properties (e.g. second homes or buy-to-let investments) would be 3% higher than on an ordinary main residence purchase. For example, a 200,000 property bought as a main home would attract 1,500 SDLT, but if bought as a buy-to-let the charge would be 7,500. In the Scottish Budget the following month, the Finance Minister announced the same approach would apply to LBTT. Capital gains tax CGT is payable on realising an asset that has increased in value. There is an annual exemption ( 11,100 in 2015/16). The rate of CGT depends on the level of the taxpayer s income for the year. The gains, after deducting the annual exemption, are added to the taxpayer s income and taxed at 18% if the total is not more than the basic rate income tax threshold of 31,785 ( 32,000 in 2016/17). Any gains which fall above this level are taxed at 28%. CGT is generally not payable on selling your main residence. However, if you sell a second home or other home that is not your main residence (even if the property is located abroad), CGT will be payable. Example: A couple each own a flat. One moves in with the other and rents out their flat. Several years later, the rented flat is sold and CGT may be payable on part of the gain on sale. In such cases, it may have made more sense to sell the flat immediately on moving out, so avoiding having to pay CGT later. In the November 2015 Autumn Statement the Chancellor revealed that from 2019/20, any CGT on residential property would be payable on account within 30 days of sale; at present the tax can be deferred for up to almost 22 months.

3 Value added tax VAT is not payable on housing, but it is payable on most building work and materials. Income tax If you rent out part, or all, of your home, the rent you receive counts as income. The exception to this is the rent a room scheme. Under that arrangement, currently gross annual rent up to 4,250 is not taxable. The exempt rent will rise to 7,500 from 2016/17. Council tax This is an annual tax payable on the value of your property as established at April 1991, and pays for local rather than national services. The amount you pay is based on the valuation band your property falls into: Council tax: England: Valuation band Range of values A Up to 40,000 B Over 40,000 and up to 52,000 C Over 52,000 and up to 68,000 D Over 68,000 and up to 88,000 E Over 88,000 and up to 120,000 F Over 120,000 and up to 160,000 G Over 160,000 and up to 320,000 H Over 320,000 Council tax: Scotland: Valuation band Range of values A Up to 27,000 B Over 27,000 and up to 35,000 C Over 35,000 and up to 45,000 D Over 45,000 and up to 58,000 E Over 58,000 and up to 80,000 F Over 80,000 and up to 106,000 G Over 106,000 and up to 212,000 H Over 212,000 Of course, property values have risen considerably since In addition, many properties have been added to, otherwise changed or even built since then. Even so, a valuation for council tax today will still recalculate back to a theoretical 1991 value. In Wales, a revaluation in 2003 means that the scale looks quite different:

4 Council tax: Wales: Valuation band Range of values A Up to 44,000 B Over 44,000 and up to 65,000 C Over 65,000 and up to 91,000 D Over 91,000 and up to 123,000 E Over 123,000 and up to 162,000 F Over 162,000 and up to 223,000 G Over 223,000 and up to 324,000 H Over 324,000 and up to 424,000 I Over 424,000 In Northern Ireland, the system of rates still applies. This sets a rateable value, based on how much a property could be rented out for. District and regional rates are then charged, at a percentage in the pound. There are situations where council tax or rates are not charged or are charged at a different level. Your local authority will be able to give you more details. It is possible that properties in England and Scotland may be revalued at some stage and/or that the system in Northern Ireland is changed. If so, such changes on their own should not necessarily mean that you pay more however, inevitably, some people could pay more and some less. Insurance premium tax Insurance premium tax (IPT) is payable at 9.5% (since 1 November 2015) on household insurance, and on short term protection policies such as mortgage payment protection insurance (MPPI). It is not payable on long term policies (such as most life insurance) or on pensions. Inheritance tax Inheritance tax (IHT) is payable on the value of your net estate (after debts have been paid), including the value of your home (less any mortgage) on death. If you gift money or assets before death, their value using a sliding scale, so that older gifts may be taxed less is added back in to your estate if you die within seven years. For many people, the value of their home is one of the biggest elements in their estate, so IHT can be payable even if you do not regard yourself as wealthy. Planning in advance can help to reduce IHT on death, while life insurance can be used to pay an anticipated tax bill. Ask us for details of how this could work for you. From 2017/18 a new residence nil rate band will be phased in, eventually meaning that in 2020/21 up to 1750,000 of property value could be free of IHT. The rules are complex and yet to be finalised.

5 Your home may be repossessed if you do not keep up repayments on your mortgage. There may be a fee for mortgage advice. The precise amount will depend on your circumstances and/or amount of borrowing. We will notify you of any costs before any advice is provided. This guide is for general information only and is not intended to be advice to any specific person. You are recommended to seek competent professional advice before taking or refraining from taking action on the basis of the contents of this publication. The Financial Conduct Authority (FCA) does not regulate tax advice, so it is outside the investment protection rules of the Financial Services and Markets Act and the Financial Services Compensation Scheme. This publication represents our understanding of the law and HM Revenue & Customs practice as at 19 December 2015, which are subject to change.